Casting Payment Terms: Deposits, Letters of Credit and Milestone Billing

This guide breaks casting payment terms into cash rather than jargon. We work one real-size order all the way through — 2,000 ductile iron pump housings with new tooling — and price each structure on the same basis: cash tied up, bank fees, and what happens when something goes wrong. Where a number depends on a standard, we name the standard. Industry practice references come from the American Foundry Society, the North American Die Casting Association and the ICC rules that govern documentary credits. If you are still at the quotation stage, read what a foundry needs for an accurate quote first — the schedule you are offered usually follows directly from how complete that package was.

Why Casting Payment Terms Are a Working-Capital Contract

A machine shop buys bar stock and cuts it. A foundry buys pig iron, scrap, ferroalloys, sand and binders, melts them, pours them, then waits weeks before the shape is cool enough to inspect. Most of the cost of a casting exists before there is anything to ship, and almost none of it can be resold — a pattern, a core box and a poured casting are all single-customer assets. That is the fact that casting payment terms are built to manage.

Take the order we use throughout this article. Two thousand pump housings, 18.0 kg net weight each, poured at a 62% yield so 29.0 kg of iron leaves the furnace for every good part — the alloy choice behind that number is unpacked in gray iron vs ductile iron. Unit price $24.50 gives $49,000 of goods. New tooling — a pattern plate and two core boxes — adds $12,000. Total purchase order: $61,000. Here is where that money physically has to go before a crate leaves the dock.

That single figure — 84% of the order value committed before delivery — explains nearly every clause you will be asked to sign. It is also why the deposit conversation inside casting payment terms is not a negotiation about trust. It is a negotiation about who carries roughly $51,000 of illiquid, customer-specific inventory for ten weeks. The same arithmetic drives the clauses covered in how casting tooling cost is amortised, and it is the reason a supplier pushes back when you ask for volume without a schedule, as the MOQ arithmetic shows from the other side. For the per-piece view of the same $24.50, see what drives casting cost.

• Tooling is the hardest cash. It is paid out first, it is the largest single line, and it is worthless to anyone but you. That is why it is usually billed 100% up front, separate from the goods.
• Metal is bought before it is poured. A foundry holding your slot has committed to charge material at a price set before your PO was signed.
• Labour is spent on the moulding line, not on the invoice. Once a job is scheduled the cost is incurred, whether or not the PO is later cancelled.
• Finished goods are not general inventory. They cannot be redirected to another customer, so a cancelled order is a write-off rather than a stock transfer.

Six Casting Payment Terms Structures You Will Be Offered

Almost every set of casting payment terms you are offered is one of these six, sometimes with a local variation. The columns that matter are not the percentages — they are how much cash you pay before you have evidence the parts are good, and what document triggers the rest. The structure also shifts with the process: tooling-heavy routes such as aluminium die casting and permanent mould casting push the tooling line up and the deposit with it, while sand casting versus investment casting differ mostly in where the sample cost falls.

One thing these casting payment terms all share: you have paid the full $61,000 before the crate reaches your door. The deposit changes when, not whether. So the real question is not “how much deposit” but “what evidence do I get before each tranche” — which is what milestone billing answers below.

What the Money Actually Costs

Casting payment terms look like a percentage until you price the money. Credit is never free — it is only priced somewhere else. To compare structures fairly we price both sides’ capital at 10% a year and use one timeline: $12,000 of tooling leaves on day 0, the $39,200 of goods spend is spread evenly across a 10-week (70-day) build, and the shipment lands at the far end. Deposit structures pay the balance on day 70, a letter of credit settles around day 75 once documents are presented, and open account 30 pays on day 105. Re-run it with your own cost of capital and your supplier’s — the ranking will not change much.

Two conclusions fall out of that table, and both are counter-intuitive. If you are comparing two suppliers, this is the arithmetic that separates a real concession from a cosmetic one. First, 30/70 is the cheapest arrangement overall at about 1.1% of PO value, cheaper than the structure that looks most buyer-friendly. Second, open account and letters of credit both land near 1.8–2.2% — the difference is only that OA hides the cost inside the unit price while the LC prints it on a bank statement. Which means the wrong move is “give me OA 30”. The right move is either to accept 30/70 and ask for the roughly 0.8-point difference back in the unit price, or to accept OA and recognise you are already paying for it.

Letters of Credit: What They Cover and What They Do Not

A documentary credit is the most misunderstood instrument in casting payment terms. The governing rules — UCP 600, published by the International Chamber of Commerce — state plainly that banks deal with documents and not with goods, services or performance. A complying presentation gets paid even if the castings in the container are scrap, because the bank never sees the castings.

So an L/C is a settlement tool, not a quality tool. Use it when counterparty risk is real and the order is large enough to justify the fees; use a quality gate when it is the parts you are worried about. The two combine well, which is exactly what the milestone structure below does.

Keep the document list short

Every extra document you demand is another chance for the presentation to be discrepant, and every discrepancy costs $80–150 plus days of delay while the crate sits at the port. The list that keeps casting payment terms moving is short: signed commercial invoice, packing list, full set of bills of lading, and a certificate of inspection referencing the PO. Common causes of avoidable discrepancies are a required chamber attestation, an original the supplier cannot obtain in time, and a goods description copied from an early quotation that no longer matches the final PO. Keep whatever quality evidence you need inside the certificate of inspection rather than scattered across separate certificates.

Milestone Billing That Ties Cash to Physical Gates

If you change one thing in your casting payment terms, make it this. Milestone billing is the structure that protects a buyer, because each payment is released by a physical event you can verify rather than by a calendar date. Here is the same $61,000 order split across four gates.

Gates rather than dates: that single change is the biggest upgrade most buyers can make to their casting payment terms. Two of the four matter most. M2 is where the whole programme is decided, and it should be paid only against a first article inspection report that actually proves something — not against a photograph of a good-looking part. M3 is where you confirm the production batch, and the evidence should be the same non-destructive and dimensional work described in the buyer’s guide to casting inspection methods, referenced to the tolerance class you specified under ISO 8062. If the part is new, M1 and M2 are usually served by prototype castings or a printed pattern before any production tooling is cut.

What a retention really covers

Retention exists because the worst defects are the ones that only appear after you have machined them. On our order a 5% retention is $3,050. If 1.8% of the batch — 36 pieces — turns out to be unsound at your machining line, you have lost $882 of castings plus roughly $30 each of machining already done, so $1,962. The retention covers it. Push the failure rate to 2.8% — 56 pieces — and you are right at the $3,050 limit.

Read that against your own history before you set the retention line in your casting payment terms. If your machining line typically finds 1% or less, 5% is plenty and asking for more simply adds cost to the price. If you are running a new geometry with known risk — see the common casting defects guide for which geometry produces which defect — ask for 10% for 60 days, or replacement in kind instead of cash. Replacement in kind is often easier for a foundry to accept than a larger hold-back, because it costs them variable cost rather than cash. And it is worth remembering that a defect found after machining costs both parties more than one found earlier, which is why machining allowance belongs in the same conversation.

Currency, Bank Charges and the Clauses That Decide Who Pays

Three short clauses inside casting payment terms cause most of the disputes that follow a wire. They are one line each on the PO, and they all need to be written before money moves.

• Charge code: OUR, SHA or BEN. OUR means you pay every bank in the chain and the supplier receives the full invoiced amount. SHA splits them. BEN deducts everything from the proceeds, which is how a $61,000 payment arrives as $60,930 and starts an argument about who owes the difference. Write it on the PO.
• Invoicing currency. If the quotation is in a currency that is not your own, the PO should say which currency is invoiced and, where a conversion is needed, where the rate comes from. Otherwise the exchange question gets settled at the worst possible moment — the mechanics are the same ones inside material-index and currency clauses.
• Beneficiary identity. The account must carry the legal name of the entity on the PO and on the quality documents. A request to pay a different company, or a personal account, is a stop-work signal regardless of how good the price was.

One more timing point catches buyers out: shipping documents are released against the balance payment, so the payment date and the delivery schedule are the same schedule. Cross-check any shipment date against the stage breakdown in how casting lead time is built, and remember that the crating step at the end has its own cost line, as covered in export crating and freight damage control.

Six Red Flags and the Counter for Each

Bad casting payment terms announce themselves before any money moves. Six of the signals are worth memorising.

Five Levers That Improve Your Terms Without a Fight

Improving casting payment terms is a trade, not a demand. Each of these gives the supplier something they want in exchange for something you want.

• Split the tooling instead of prepaying it. Rather than 100% up front, ask for 50% at tooling order and 50% on sample approval. If the supplier will not move, ask to amortise the tooling into the unit price over the first year’s volume — that turns a cash cliff into a per-piece cost you can compare across quotations. Our pattern and mould making work is quoted either way.
• Trade the deposit for a quality gate. “I will accept 50% up front if the second 50% is released by sample approval rather than by a date.” Most foundries take that, because it costs them nothing while their process is under control.
• Use a blanket PO with releases. For a running part, issue an annual quantity and release monthly. You pay for what is released and the supplier gets the forecast they need to book capacity, spreading working capital across twelve payments instead of one. It works best where quantity is genuinely predictable, which is the same discipline the MOQ arithmetic rewards.
• Ask for a stock-and-release buffer on high runners. The supplier holds six to eight weeks of finished stock and you pay on pull. Carrying charges typically run 1.0–1.5% per month of the held value: on a part running 6,000 a year, eight weeks of stock is about 923 pieces, roughly $22,600, so $230–340 a month. Cheap against a line stoppage.
• Take the early-payment discount if your cash is cheaper than theirs. Two percent for paying 50 days early is 14.6% annualised (2% × 365 ÷ 50). Below that cost of capital, take it every time; above it, decline and keep the cash.

All five rest on the same logic, and none of them need goodwill. Casting payment terms improve when you bring something to the table: every concession is paid for with evidence, schedule certainty or volume, never with goodwill. Suppliers price the first three and they price goodwill at zero.

Casting Payment Terms Checklist for Your Next PO

Ten lines, all written before the PO is signed. If one is missing, expect to negotiate it later from a weaker position.

FAQ

Is a 30% deposit normal in casting payment terms?

Yes — it is the most common structure for a second or later order. For a first order with new tooling, expect the tooling to be billed 100% up front on top of it, which puts total up-front payment nearer 50%. Before you agree to the tooling number, the tooling cost breakdown gives the ranges by process.

Can I get open account on the first order?

Rarely, and you should not push for it. Open account is the second most expensive arrangement once financing is counted — about 1.9% of PO value on our worked example — and with an unqualified supplier you carry counterparty risk on top. Earn it after three to six clean deliveries, and expect the credit cost to be built into the price.

Should tooling be paid separately from the parts?

Almost always, yes — it is a different asset with a different life and a different owner. Either you buy it outright and own it, or the supplier holds it and amortises it into the unit price. The first is better if the programme will run for years, the second if you are unsure of volume; either way, get ownership and refurbishment responsibility in writing.

Who pays the letter of credit fees?

Whoever the PO says, so say it. Convention is that the buyer pays issuance and the beneficiary pays advising and negotiation, but the only reliable arrangement is the written one. On a $61,000 order the total is $400–650, and arguing about it afterwards costs more than the fee.

What if a supplier insists on 100% prepayment?

It is normal for small orders and express tooling jobs, and reasonable when the tooling has no alternative use. For a production order from a supplier you have not qualified, treat it as a signal rather than a habit: cap the exposure, tie release to a documented sample approval, or use a documentary credit. If the requirement appears only after you have signed, that is a different problem.

Do casting payment terms change with order size?

They do, and usually in your favour. Small orders carry a fixed transaction cost that makes deposits and 100% prepayment normal; once a programme is running, that cost is amortised and the supplier has a reason to offer milestones or credit. The volume threshold where it turns is the same one that governs minimum quantities, which is why the two conversations are really one.

Where to Start

If you are comparing suppliers, casting payment terms are worth three written questions rather than a debate over the percentage. Ask each one three questions and compare the answers in writing: what triggers each payment, what evidence arrives with it, and what happens when a part fails at your machining line. A foundry that answers crisply has usually thought about its own working capital, which tells you more than the terms sheet does. Our sand casting, investment casting and die casting programmes run on the milestone structure above, with downstream CNC machining, heat treatment and surface treatment quoted the same way. For the wider picture of how a casting programme fits together, start with the metal casting guide.

*Structures and fee ranges referenced from ICC UCP 600 practice, AFS and NADCA industry publications, and Supro MFG commercial records. Figures in the worked example are illustrative for a 2,000-piece ductile iron order and vary with part geometry, alloy and volume.